Companies involved in natural resource extraction and refinement are uniquely positioned to both benefit and suffer from society’s response to climate change. On the one hand, global demand for many metals and minerals is increasing as developing nations rapidly modernize, the global population continues to grow and certain industries, such as electric vehicles, batteries and solar photovoltaics (PV), gain momentum.

Mining companies will play a critical role in the energy transition, providing the raw materials needed to grow these nascent industries. Metals that likely will be needed for the low-carbon transition include copper, silver, aluminum (bauxite), nickel, zinc, neodymium and indium.

On the other hand, mining companies are vulnerable to both societal pressure and policy changes. All such companies have a lot of work to do if they are to put themselves on a decarbonization pathway in line with the Paris Agreement to limit global warming to 2 degrees Celsius. A recent report by CDP shows that in 2015, half of worldwide industrial greenhouse gas emissions could be traced back to just 50 companies (called carbon majors) working in heavy fossil fuel industries (the report [PDF] examined scope 1 and 3 emissions). Mining companies, particularly those involved in coal extraction, ranked high on the list, taking two of the top five spots and 20 spots overall.

In fact, even three International Council on Mining and Metals (ICMM) member companies — the "crème de la crème" when it comes to sustainability efforts in the industry — made the list. Therefore, meeting the goal of the Paris Agreement will require these companies to significantly reduce the amount of CO2 they release and, in some cases, the types of resources they extract. To date, technology has provided the mining industry with incremental efficiency gains, but dramatic additional emissions reductions will be required if they are to meet both regulatory mandates and societal pressures.

Emissions reduction strategies

Where are these reductions to come from? Mining companies have a host of options to choose from when planning for operational emissions reductions, including leveraging new technologies and innovations to add renewables to their electricity supply, improving mining processes, switching from fossil fuels to renewable fuels, reducing waste and optimizing transportation.

Mining companies need to evaluate these options internally and choose the most beneficial and cost-effective approach for their unique circumstances, but every plan must have an appropriate target as well as public disclosure of progress.

Corporate governance and financial disclosures

In addition to the technological and operational improvements mentioned above, mining companies that wish to flourish in the new energy transition would do well to research and employ the corporate governance best practices of their peers, both within and outside the mining industry. First, companies need to plan for the physical risks that come with the new normal of a climate-changed world. For example, they need to plan for stressed water resources and damaged supply chain routes due to more frequent and more extreme natural disasters. They must identify vulnerable areas in their business strategies and then figure out ways to make them as resilient as possible. They should expect this need to be emphasized by investors who want assurances that their investments are secure and that businesses are prepared.

Companies can’t consider just the physical risks; they need to plan for the financial risks and opportunities that also come with a climate-changed world.

However, companies can’t consider just the physical risks; they need to plan for the financial risks and opportunities that also come with a climate-changed world. Climate change introduces economic risks through changes in policy (carbon pricing), changes to resource prices or changing demand for products and services (new energy transition technologies). The private sector-led Task Force on Climate-related Financial Disclosures (TCFD) recommends companies voluntarily and consistently disclose climate-related financial risk to investors, lenders, insurers and other stakeholders. Several mining companies, including four ICMM members — Barrick Gold, BHP, Glencore and Vale — are already signatories to TCFD’s recommendations.

Science-based targets

Yet disclosing climate risk is only the first step. Companies also must set targets and take action in order to mitigate this risk. It is no longer enough to set incremental targets focused on low-hanging fruit. The Science Based Targets initiative (SBTi), a joint initiative of CDP, the World Resources Institute (WRI), the World Wide Fund for Nature (WWF) and the United Nations Global Compact (UNGC), encourages businesses to set ambitious emissions reduction targets "in line with the level of decarbonization required to keep global temperature increase below 2 degrees Celsius compared to preindustrial temperatures, as described in the Fifth Assessment Report of the Intergovernmental Panel on Climate Change (IPCC AR5)."

To date, more than 120 companies have set SBTi-approved emissions reduction targets in line with climate science and the goals of the Paris Agreement, and an additional 320 companies are committed to following suit. Unfortunately, no mining company has an SBTi-approved target yet. This is likely owing to challenges regarding scope 3 emissions and the methodology behind the various SBTi-approved target-setting approaches.

Cocreating a decarbonization pathway

The mining industry is beginning to recognize the urgency of climate change, but more dramatic action is needed. Companies that wish to develop emissions targets and solutions have access to frameworks, standards and resources to assist them. But it is up to the companies themselves to use and improve upon these resources if we are to avoid a business-as-usual trajectory, which shows global temperature rise likely reaching 3.4 C by 2100.

If a decarbonization pathway for the mining industry (or perhaps even subsectors of the industry) is to succeed, it must be charted together with the industry itself. Cocreation of this pathway is certainly the next logical step. It should include setting emissions reduction targets in line with climate science; tracking progress rigorously, consistently and publicly; evaluating long-term climate risks and opportunities; and actively seeking out and developing technologies and strategies to reduce carbon emissions, using the ideas mentioned above as a starting point. The time has come to move beyond thought leadership to implementation. And make no mistake — winners and losers in the mining industry, as in other industries, will be determined by how well companies prepare now.